Bloomberg adds pre-trade TCA for global bond markets

Bloomberg has added a pre-trade transaction cost analysis model to its Bloomberg Transaction Cost Analysis (BTCA) platform. The model uses five years of Bloomberg proprietary trading data to estimate transaction costs, expected daily executable volume and the probability of execution for investment-grade and high-yield corporate bonds and sovereign debt worldwide.

The tool gives traders and portfolio managers pre-trade estimates for different order sizes and lets users run scenarios by changing bond spreads and credit ratings. It reports expected daily executable volume and the likelihood an order will be filled to show execution risk before orders are placed.

Bloomberg developed the model using five years of historical trading records and combines several inputs: order size and direction, real-time Composite Bloomberg Bond Trader (CBBT) bid-ask spreads, bond ratings, currency, amount outstanding, bond age, term and time to maturity.

The functionality is integrated into BTCA’s multi-asset platform, expanding the platform from post-trade reporting to include decision support ahead of trades. Users can connect pre-trade outputs to post-trade surveillance and customised reporting within existing BTCA workflows.

Dutch pension investor PGGM participated in beta testing. Jan-Theo Varkevisser, Global Head of Fixed Income Trading at PGGM, said: “Reliable pre-trade data for fixed income is scarce, which makes price discovery and proving best execution a challenge. The product provides us with trusted pre-trade price discovery and an automatic connection to post-trade analysis that ensures a valuable feedback loop for our traders to inform their trading decisions.”

Ravi Sawhney, Global Head of Trade Automation & Analytics at Bloomberg, commented: “Trade cost models are common in equities; a native fixed-income model gives traders more pre-trade intelligence.” He added that the model’s pre-trade cost and probability estimates are intended to increase market transparency and help firms meet best-execution requirements.